A US intelligence firm has agreed to pay $1.7 million in damages to settle an allegation that it corrupted a Bermuda Government investigation into a local mutual fund, an offshore business newsletter had reported.

Miami-based OffshoreAlert reported yesterday that two sources had confirmed the size of the settlement by Diligence LLC to settle the civil suit brought by local firm KPMG Financial Advisory Services Ltd. and its managing directors Malcolm Butterfield and Michael Morrison.

The suit was brought in US District Court in Washington, DC in November last year.

KPMG parties had accused the Washington, DC-based company of using bribery, deception, and computer hacking to obtain confidential information about an investigation into alleged money laundering by IPOC International Growth Fund Ltd. and 11 Bermuda-registered affiliates that KPMG FAS was conducting on behalf of the Bermuda Government. The plaintiffs were seeking $1 million in compensatory damages and $10 million in punitive damages, alleging one count each of fraud, conversion/misappropriation, and unjust enrichment, when the case was settled in June, 2006, OffshoreAlert reported.

The newsletter, run by former journalist David Marchant, said the names of the KPMG FAS employees who allegedly provided confidential information to Diligence were publicly disclosed for the first time recently in another civil action concerning the same circumstances that was filed at the same court on June 15, 2006 by IPOC against Diligence LLC and Barbour Griffith & Rogers LLP, a Washington, DC law firm that allegedly hired Diligence to investigate IPOC for the benefit of a BBG client, British Virgin Islands-incorporated, Moscow, Russia-based LV Finance Group Ltd., which is involved in a long-running legal battle with IPOC over ownership of a 25.1 percent stake in Russia?s third largest mobile telephone operator, OJSC MegaFon.

According to a court filing by IPOC on July 31, they are Lee Griffin and Guy Enright, who were persuaded by Diligence private investigators posing as intelligence agents for the US and British governments to turn over information about their investigation into IPOC.

OffshoreAlert said Mr. Griffin, who is still employed by KPMG FAS as a ?Senior Manager, Forensic?, did not respond to questions that were e-mailed to him, while the newsletter was unable to contact Enright, who is apparently no longer employed by KPMG FAS and is believed to have left Bermuda.

OffshoreAlert noted that the proceedings between KPMG and Diligence were subject to unusual secrecy, and that IPOC was attempting to get access to the documents in order to pursue its action.

The newsletter said that in that case, Diligence said: ?In its complaint, plaintiff IPOC International Growth Fund Limited alleges a litany of claimed injuries to its business, while at the same time assiduously avoiding any description of the nature of that business ? with good reason.

?IPOC has been the focus of considerable attention ? media, regulatory, and prosecutorial ? in the wake of revelations that it is, in fact, a money-laundering front used to hide over a billion dollars? worth of illicitly-acquired assets beneficially owned by Leonid Reiman, the Russian Minister of Information Technology and Communications.?

Diligence pointed out that an arbitration tribunal in Zurich, Switzerland recently determined that, ?despite IPOC?s protestations to the contrary, Mr. Reiman is in fact the beneficial owner of IPOC? and that he had ?misused his official position to benefit companies he controlled.?

?Having been revealed and adjudged for what it is ? a money-laundering enterprise ? IPOC now seeks to hold Defendants liable for purported harms to that ?business?,? stated Diligence.

The Mid-Ocean News reported on August 18 that KPMG FAS submitted its IPOC report to the local Ministry of Finance at the end of June ? 27 months after Mr. Butterfield and Mr. Morrison were appointed to inspect IPOC, a period in which, according to IPOC, KPMG FAS billed more than $8 million in fees and expenses, an amount that IPOC is required to pay under Bermuda?s Companies Act, OffshoreAlert said yesterday.

In a statement to the Mid-Ocean News, a Ministry of Finance spokesperson stated that ?given the length and depth of this investigation, the Ministry confirms that there is no intention to release the report at this time in order to give the appropriate regulatory and other relevant authorities a reasonable opportunity to consider the report?. The newsletter added: ?There is compelling evidence to suggest that the report will whitewash the scandal in an attempt to protect the reputation of Bermuda and local companies that provided services to IPOC, most notably Bermuda Commercial Bank and/or its affiliates and the law firm of Wakefield Quin and/or its affiliates, including Roderick Forrest, Wakefield Quin?s ?Senior Counsel, Corporate? who served not only as a director of at least five IPOC firms but also as vice president of IPOC International Growth Fund. Early on, the Ministry of Finance, which is a division of government, took control of the investigation away from Bermuda?s independent financial services regulator, the Bermuda Monetary Authority, which is supposed to oversee such investigations, and, in a draft report prepared by KPMG FAS in late 2005, it was claimed that IPOC had not broken any laws in Bermuda and that local service providers were blameless.

?In its statement to the Mid-Ocean News, the Ministry of Finance spokesperson made no mention of Bermuda?s laws being enforced but stated that ?measures taken will be taken with a view to ensuring that Bermuda?s national economic interests and reputation is protected?.?

Mr. Butterfield could not be reached for comment yesterday.